Recently, there was a discussion on the legality of taxes on the LULA mailing list. The author who was claiming that they were illegal made the statement: The government doesn't need taxes to pay for things, it can just print its own money. Normally, I'd write this off (pun intended) as someone who doesn't understand the modern abstract nature of money and economies. But, let's entertain this for a little while.

If the government was to print enough extra money (more than it destroys from use) each year to pay for its expenses there would be a deflation in the value of that currency. Overall, the economy would suffer inflation. For round numbers, let's say that taxes are 20%, if inflation was 20% also, what's the real difference? Every year I have 20% less than I had the year before, which is roughly what taxes do (except that they generally only effect income not savings). It would be a very even handed approach with businesses and individuals being effected the same, and would effectively impose a flat tax. But, it would reduce the costs of collection and remove the hassle of filling. "Taxes" could be easily be adjusted on a year by year basis to compensate for changing circumstances (e.g. war, drought, plague).

Making the change would be economically disruptive, and remove some of the good that can be done with tax law. The ability to encourage certain behaviors (e.g. home ownership) through taxes is unlikely to be a power governments are willing relinquish. But, in reality, the idea isn't as crazy as it first sounds (half as crazy).


posted Aug 11, 2005 | permanent link